Isle of Man: Spreadex v. Cochrane

Last Updated: 9 August 2012
Article by Claire Milne

In a somewhat surprising decision (Spreadex v. Cochrane) the English High Court has recently ruled that an online betting operator could not recover £50,000 on loss-making trades allegedly made by a customer's girlfriend's five year old son. The case has important implications for the enforceability of terms and conditions for companies, especially gambling companies, offering their services online.

Facts of the Case

Mr Cochrane was a customer of Spreadex - a spread betting online operator. Mr Cochrane showed a five year old boy (his girlfriend's son) how to bet on the website, treating it as a 'game'. The boy subsequently went on the website without Mr Cochrane present and lost £50,000. Mr Cochrane explained the situation to Spreadex however, Spreadex claimed that Mr Cochrane would still be liable for the loss.


Spreadex sought summary judgment in the Queen's Bench Division (High Court) contending that Mr Cochrane had no arguable defence. Spreadex relied primarily on Clause 10(3) of its Customer Agreement, the terms of which Mr Cochrane had agreed by his click online in October 2010. The Clause stated:

'(y)our password must be declared, together with your account number, when you wish to access your account. You will be deemed to have authorised all trading under your account number...'

Clause 10(3) could be of no assistance to Spreadex unless it formed part of some binding contract which pre-existed the individual trades and for such to exist there had to be what is called "consideration" (i.e. benefit provided or detriment suffered). Lawyers for Spreadex submitted that the necessary contractual consideration could be found in the grant of access to the on-line platform. However, this submission ignored Clause 10(15) of Spreadex's Customer Agreement which stated: 'We reserve the right to reduce or remove altogether our online service at any time.' The same applied to the maintenance of an account in the name of the customer (including the provision of an account number and the registration of a password), since under Clause 29(2) of its Customer Agreement, Spreadex provided; 'We reserve the right to close or suspend your account at any time.'

The court concluded that there had been no promise or commitment by Spreadex which might form part of a contract and provide the "consideration" necessary to make Clause 10(3) legally binding. Therefore, each bet made by Mr Cochrane with Spreadex was an individual trade made on its own terms and not made on Spreadex's online published terms. Mr Cochrane was therefore not liable for the betting undertaken by the boy.

The judgment went further to conclude that, even if this was not the case, Clause 10(3) would not have been enforceable against Mr Cochrane on the basis that it was unfair under the provisions of the Unfair Terms in Consumer Contracts Regulations 1999 (UTCCR). The Isle of Man equivalent legislation is found in the Fair Trading (Amendment) Act 2001 but interesting, these provisions have not as yet come in to force in the Isle of Man.

In particular, Regulation 5(1) of UTCCR is concerned with the balance between rights and obligations. Under Clause 10(3) of the Customer Agreement, the customer would be made liable for any trade on the account not made or authorised by the customer. It was held that this would amount to a significant imbalance in the parties' rights and obligations.

The court further considered the manner in which the Clause was incorporated into the contract (if there was one). Mr Cochrane was told that four documents, including the Customer Agreement, could be viewed elsewhere on-line. It was concluded that it would have 'come close to a miracle' if Mr Cochrane had read the second sentence of Clause 10(3), and it would have been quite irrational for Spreadex to assume that he had. Even if he had chosen to look at the documents, he would have been faced with the Customer Agreement, which alone was 49 pages, containing closely printed and complex paragraphs. It is unlikely Mr Cochrane would have appreciated the effect of the clause. It was held by the court that this was an entirely inadequate way for Spreadex to seek to make the customer liable for any potential trades which he did not authorise, and was a further factor rendering the second sentence of Clause 10(3) an unfair term.

The summary judgment sought by Spreadex was refused. Spreadex could still seek a full court hearing to argue its case for payment.

Effect of Decision

The terms and conditions found in Spreadex's Customer Agreement are not unusual in the industry and Spreadex may still seek a further hearing. The case may therefore not be at an end especially as its outcome is quite surprising. However, the case is of particular importance to businesses operating online that will need to ensure that their terms and conditions comply with laws regarding fairness. This includes not drafting terms unreasonably in favour of the service provider. The terms must also form part of the contract between the business and the customer. This includes working out the appropriate timing for presentation and agreement to the terms.

This should be at a stage when contractual obligations or other consideration are created for both parties. It is not enough for terms and conditions to be presented to the customer when there has been no consideration, and therefore no enforceable contract. Onerous terms must also be brought to the attention of customers. It is not sufficient for terms that may make a customer liable to be hidden away in a lengthy, complicated document.

Given that the Isle of Man's equivalent provisions to the UK's Unfair Terms in Consumer Contracts Regulations 1999 are not yet in force, it is not clear if a Manx court would necessary hold that the terms and conditions were unfair - the risk however that this would be the case has to be considered. The Isle of Man does have provisions that are similar to the "reasonableness" test for standard contracts found in English law. In addition, Manx law also has similar provisions regarding the requirement for contracts to have "consideration" to be valid. Therefore, a Manx court may well follow the English court's view in this case.

The Spreadex case may not be at an end as yet. However, notwithstanding its final outcome, it is a useful reminder to businesses that their standard terms and conditions must be "reasonable". It may also be appropriate for businesses not simply to rely on a contractual term for protection. Other ways of protection should be considered for example, technical safety measures can be incorporated into a website such as automatic log-outs; re-input of password to make purchases of a large amount; and warnings on the website to log-out.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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